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CHAPTER 11 Total Rewards and Compensation

CHAPTER 11 Total Rewards and Compensation. Nature Of Total Rewards and Compensation. Total Rewards Monetary and non-monetary rewards provided to attract, motivate, and retain employees. Rewards System Strategic Objectives: Legal compliance with all laws and regulations

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CHAPTER 11 Total Rewards and Compensation

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  1. CHAPTER11Total Rewards and Compensation

  2. Nature Of Total Rewards and Compensation • Total Rewards • Monetary and non-monetary rewards provided to attract, motivate, and retain employees. • Rewards System Strategic Objectives: • Legal compliance with all laws and regulations • Cost-effectiveness for the organization • Internal, external, and individual equity • Performance enhancement for the organization • Performance recognition and talent management • Enhanced recruitment, involvement, and retention

  3. Traditional Approach Total Rewards Approach • Compensation is primarily base pay • Bonuses are for executives only • Fixed benefits tied to long tenure • Pay grade progression is based on organizational promotions • One organization-wide pay plan for all employees • Variable pay used with base pay • Annual/long-term incentives provided to all employees • Flexible and portable benefits offered • Knowledge-based broadbands determine pay grades • Multiple pay plans consider job family, location, and business units Compensation Approaches

  4. Total Rewards Components FIGURE 11–1

  5. FIGURE 11–2 Continuum of Compensation Philosophies

  6. Typical Division of Compensation Responsibilities in HR FIGURE 11–4

  7. Compensation Fairness and Equity Internal EquityProcedural JusticeDistributive Justice External Equity Pay Secrecy vs. Openness Compensation System Design Issues

  8. Market Competitiveness and Compensation “Lag the Market” Strategy “Meet the Market” Strategy “Lead the Market” Strategy Compensation System Design Issues (cont’d)

  9. Compensation Quartile Strategies FIGURE 11–5

  10. Identification of the required competencies Progression and compensation of employees Competency-Based Pay SystemsKBP/SBP Limitations on who can acquire more competencies Training in the appropriate competencies Certification and maintenance of competencies Competency-Based Pay System Design Issues

  11. Individual versus Team Rewards Team Individual How to develop compensation programs that build on the team concept. How to compensate the individuals whose performance may also be evaluated on team achievements. Compensation System Design Issues (cont’d)

  12. Possible Components of Global Employee Compensation FIGURE 11–6

  13. Compensating Expatriates Global Market Approach Balance-Sheet Approach Tax Equalization Plan Global Compensation Issues

  14. Fair Labor Standards Act (FSLA) Child LaborProvisions Exempt and Non-Exempt Statuses Minimum Wage Overtime Pay Legal Constraints On Pay Systems

  15. Executive Administrative Exempt Employees Outside Sales Professional Computer Employees Categories of Exempt Employees

  16. Determining Exempt Status under the FLSA FIGURE 11–7

  17. Wage/Hour Regulations • Fair Labor Standards Act (FLSA) • To qualify for an exemption from the overtime provisions of the act: • Employees must perform their primary duties as executive, administrative, professional, or outside sales employees. • Primary has been interpreted to mean occurring at least 50% of the time.

  18. Wage/Hour Regulations • California – Exempt from Overtime • Administrative exemption • Professional exemption • Executive exemption • Computer software employee exemption – must also earn $83,132.93 annually or $39.90 per hour (1/1/13)

  19. Common Overtime Issues Compensatory Time Off Incentives for Non-exempts Training Time Travel Time Compensation for Overtime Work

  20. Identifying Criteria for Independent Contractors Financial Control Behavioral Control Relationship-Type Factors Independent Contractor Regulations

  21. Compensation and the Law Davis-Bacon ActWalsh-Healy ActMcNamara-O’Hara Act Equal Pay Act of 1963 and Pay Equity State and Local Laws Garnishment Laws Acts and Legislation Affecting Compensation

  22. FIGURE 11–8 Compensation Administration Process

  23. Valuing Jobs with Job Evaluation Methods • Job Evaluation • The formal systematic means used to identify the relative worth of jobs within an organization. • Compensable Factor • A job value commonly present throughout a group of jobs. • Something for which an organization will compensate an employee.

  24. Examples of Compensable Factors for Different Job Families in a Hotel FIGURE 11–9

  25. Job Evaluation Methods Factor-Comparison Method Point Method Ranking Method Classification Method Job Evaluation Methods

  26. Advantages Disadvantages • Ties organizational pay levels to the external job market, without “internal” job evaluation distortion. • Communicates to employees that the compensation system is “market linked.” • It relies on market survey data. • A specific job may differ from a “matching” job in the survey. • The market data’s scope (range of sources) is a concern. • Tying pay levels to market data can lead to wide fluctuations. Valuing Jobs Using Market Pricing • Market Pricing • Using market pay data to identify the relative value of jobs based on what other firms pay for similar jobs.

  27. Pay Surveys • Pay Survey • Collection of data on compensation rates for workers performing similar jobs in other organizations. • Benchmark Jobs • Jobs found in many organizations. • Internet-Based Pay Surveys • Pay survey questionnaires are distributed electronically rather than as printed copies.

  28. Participants Broad-based Survey Data Relevance and Validity Job-matches Timeliness Methodology Using Pay Surveys

  29. Pay Structures • Job Family • A group of jobs having common organizational characteristics. • Common Pay Structures • Hourly and salaried • Office, plant, technical, professional, managerial • Clerical, information technology, professional, supervisory, management, and executive • Pay Grades • Groupings of individual jobs having approximately the same job worth.

  30. FIGURE 11–10 Establishing Pay Structures

  31. Pay Structures (cont’d) • Market Line • Shows relationship between job value as determined by job evaluation points and job value as determined by pay survey rates. • Shows distribution of pay for the surveyed jobs, allowing a linear trend line to be developed by the least-squares regression method. • Market Banding • Grouping jobs into pay grades based on similar market survey amounts.

  32. Market-Banded Pay Grades for Community Bank FIGURE 11–11

  33. Example of Pay Grades and Pay Ranges FIGURE 11–12

  34. Pay Ranges • Broadbanding • The practice of using fewer pay grades having broader pay ranges that in traditional systems. • Benefits • Encourages horizontal movement of employees • Is consistent with trend towards flatter organizations • Creates a more flexible organization • Encourages competency development • Emphasizes career development

  35. Individual Pay • Rates Out of Range • Red-Circled Employees • An incumbent (current jobholder) who is paid above the range set for the job. • Green-Circled Employees • An incumbent who is paid below the range set for the job. • Pay Compression • A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small.

  36. FIGURE 11–13 Pay Adjustment Matrix 89 • Compa-ratio • The pay level divided by the midpoint of the pay range.

  37. Standardized Pay Increases Cost-of-Living Adjustments(COLA) Across-the-Board Increases Lump-Sum Increases(LSI) Seniority Standardized Pay Adjustments

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